The Fannie and Freddie Bail-Out: Sooner Than You Think

This is BS particularly when they knew about the risks 2 years ago and continued with the scheme. This coupled with the fact that they knew that the formula they were using to rate loans was flawed and continued buying the loans is outright criminal. They should let them fail and hold the people involved criminally accountable. The only way folks making 8 figure bonuses learn is to put them in jail and take all of their assets to offset the loses.

oh, God!

This is one more financial mess captained by our incompetent government, congress. Re-elect no one.

from article: "Now this $223 bn is an outsized amount of debt that will cause more than acid reflux in the already stretched to the limit bond market. And it must make you rethink Treasury Secretary Henry Paulson’s “bazooka-nomics” approach to providing an unlimited, open-ended taxpayer backstop to these two publicly traded companies, whereby Paulson halfheartedly placed a bet that an open-ended commitment would calm the markets down and cause the two mortgage companies’ shares to go up so long as Wall Street believed the government would rescue them at all costs." end clip Maybe Paulson should have gone and talked with China first before saying that ? heh Maybe he should have been at the Olympics - or on tour in China. I don't think the average American will understand what they'll be working for. It just hit me, I almost typed 'paying for' but isn't it working for ? I have concluded after my brief 1 year venture into trying to learn about the financial sector, education is a bridge between those who understand capital and how to harness it, and those who do not understand this yet, and who go on working paycheck to paycheck, paying 1/3 of their lifes labors out in taxes every year, to bailouts like this. All the while unknowing... Had they put 1/4 of their income into obtaining capital ? or means to generate money ? they'd not be well - flat out - working for Fannie and Freddie, their tenants would be ! Think about it, Frank and Linda let's say - make 100k between them, they invest 25k a year. Now, let's ask how much of their 2008 tax returns would go to pay for Freddie and Fannie ? hmm 300 million people, let's say 100 million in the US actually pay taxes, that's 100 million to cover 200 billion in bailout, but we all know more is coming, so, let's cut to the gorilla suit chase scene in a 1967 movie and say 1 trillion (come on, Savings and Loan from Neil Bush cost us well over 1 trillion in the end, and college students RIGHT NOW are paying for that, and they - again, education, don't even know it), that's 2,000 per person. 1/7th of Linda and Frank's investment resources go to Freddie and Fannie... Either way, I didn't finish the article yet, I got to China saying, 'No thankyou please goodybye - LEAVE' to taking this debt from F^2 (there IS humor in that symbiology if you look for it !) as if it's the end of the first Willie Wonka movie. I find it interesting no one in the US supports F^2 - well - heh, of course they do, in the form of their taxes they will be paying. The US seems to utilize both the US taxpayers, and also ? it seems China functions the same end result as the US tax payer - merely some means to balance the books. Something fishy here though, I came across this chart showing income tax %'s from 1940's onward. from nearly 90% up in early 40's it really does just decline, BUT, on that chart, the first huge cut is Lyndon Johnson. Now, I'm not an avid historian, but Johnson's severe jump in income tax rate for the upper class (btw, that's the only one I'm referring to here) ? Also shows up with who ? Bush I. Reagan - a BIT, Bush I makes way - and you know ? It becomes clear who 'No New Taxes' was true to, indeed. My point is this, historically, from 1940 onward, you can see income tax for the highest income bracket is on a perpetual decline. Now, if the US has means to fund the bailout of Freddie and Fannie ? on one hand through US tax payers as this article addresses ? And Paulson wants ? And on the other from China ? Hmm, I'm not sure how I ended up on this point but I will say - a new insight emerged out of this comment which is - if income tax continues to decline, often AS promised - for example by this current administration, through tax breaks, however you want to word it ? Then ? aren't the resources to fund novelty bailouts as this ? less available ? Hey, isn't it the case ? if the Federal Government can't fund it from taxes, China has picked up the tab in the past ? And here ? where I stopped reading so far in this article ? China has said No to Drugs, er, No to US Debt I mean. Perhaps wisely too. So, China isn't there to pick up the tab, and my point on tax brackets if you look at it historically, btw we are at the LOWEST I saw on the chart right now for the top bracket - it's in the mid 30's I think percentage wise. ? Well if you look at THAT ? then you can deduce - ah ha - there is less money going INTO taxes... so where it's all going to come from Charlie Brown ? asks Linus

I'm now going to swallow a whole bottle of tylenol pm and take a bath with my hairdryer.

btw my last comment on : I DO know Ronald Reagan did says regarding the deregulation of the US Financial sectors “I think we’re really hit the jackpot on this one” I do say, all characterizations of Reagan ? I can't stop laughing picturing Reagan saying that, knowing what followed with Savings and Loan. And to be in 2008 - sorting things out, thanks to Liz MacDonald too who sorts things out VERY well I think (and to be fair, there are a few hit and miss articles I find elsewhere) ? witnessing this all over again ? My favorite new item to explore ? this July 2007 uptick removal. Sure, one argument says - "why, in Eurrrrrope they don't have this, so why the US ? " One argument says - "hey pal, it was put in place in a very volatile time in the 1930's and LIKELY has been a stabalizing features to control the daily margins on volatility" which is my view. So, I see sways of 200, 300 ? 400 ? points often (I do not own any stocks though, it's an income problem ! heh) - ya think ? maybe ? it's uptick related ? and this WHOLE issue of no transparency and shorting, that one really puzzles me that it's obfuscated from daily reports- Was it Muriel Siebert who said ? Why can't there be a daily end of day report ? showing what percentage was shorts ? etc ? of all the transactions ? Really, why is that obfuscated ? IS it the Emerald Palace here ? or what I have read the ruby shoes are allegory to gold, but I'd say there's another item of interest when the Special Borrowing Rights moved to paper in 2008 in Feb as I read. So ? at top level nation state trading of gold ? it's now formally on paper for the first time ever - so far as I interpret that. What's THAAAAAYAT do for all gold underneath it ? Either way - the lack of transparency on the shorting makes me wonder if it's Wizard of Oz end scene, in other words, we don't WANT to know about the curtain if we're a citizen. Maybe Muriel is saying the US needs a Dorothy to reveal the curtain, for better or for worse - so we can at least know whether corporation X was caught in a bear trap or not. I don't watch TV for the most part - I'd like to, it's just there is virtually nothing on. But I did READ Jim Cramer commented that this entire process of shorting with no uptick can indeed take a good company down - even overnight - from a bear run. Let's face it Wall Street should just say it's the second Vegas instead of corporations ? Just call them chips with corporate logo's - just tell everyone the corporations on the chips they have are really just advertisements, and to keep on playing, as if it really doesn't even matter what corporation you're playing with. (puts coffee down)

from article: "Instead of shutting the spigot off, the two bought subprime and Alt-A securitizations through 2007 when the housing bubble burst, picking up the slack for banks when Wall Street shut down its printing press factory cranking out a drunken daisy chain of asset-backed paper. This is beyond impenetrably stupid. It’s obscene." Got that right. It's one further too, it's criminal if they KNEW they'd have bailout arrangements - my POV.

from article (as I'm reading it): "The second reason why I think the taxpayer bailout is coming faster than expected is because of the problem with Fannie and Freddie’s preferred shares. Preferred shares are a form of investment that are different from common stock, as the shares offer a dividend that is paid before any dividends are forked over to common stock investors, though the shares do not carry voting rights as common stock does." In other words We'll pay ya more money, and you'll keep your mouth shut at the next stock holders meetings.

Jeebus from article: "Of paramount importance is keeping the preferred shareholders intact, as $36 bn of these investments are held by regional banks around the country, who have counted these shares as part of their regulatory capital cushions." YIKES OUCH Not good, Not good... I wonder if that is factored in over at FDIC on their estimation of bank failures. Now, you could try to guess by how many new hires FDIC is making, heh - but I initially saw 70 banks estimated failing this year, and lastly 160 since July. If that's NOT figured in ? It's just not a good time for Regional banks to be taken down on this. Just imagine ? One senator simply saying "Looky ! They have 11% in Fannie and Freddie - everyone, RUN - Go execute a run on deposits and withdraw - withdraw ! I said withdraw!" My, if IndyMac can fall over night on rumor or the mouth of a US Senator ? My god - all it will take is for people to get a hold of who's invested the most in F^2 for their capital 'cushion' - YIKES it JUST hit me, if F^2 was living at 100 to 1, WAY beyond their means ? and they've been supporting the Regional Banks integrity ? ouch ! that really says - any regional banks are REALLY? at 100 to 1 taffy stretched too far risk TOO ! My, does Paulson have a regional bailout plan for those that are going to feel the pinch when F^2 formally brings forward it's 'load' of toxic waste to dump on the doorsteps of US taxpayers ? Now you have an interesting dilemma when it's regional banks. Think about this one... You get your IRS returns - say 3k You go to the bank to deposit the IRS check- your refund. The bank in turn is one of the banks that was propped up or cushioned by backing in Freddie and Fanny (ok, I'll give F^2 a break)... Now, the bank you want to cash your IRS refund check - is unable to do so why ? Word got out it was propped up on the '100 to 1 looney tunes purple pony fantasy getaway product made for a penny anyway in China' package AKA - Fannie and Freddie's Golden fries - guaranteed to last forever ! As stable as a student loan backed by the Deptartment of Education. My point is, you have a regional bank that can be failing because of too much dependency on F^2- and a consumer who can't cash a check from the Federal Gov. Because the money backing THAT check - well - first was already spent, or ? is China unknowingly now getting involved in actually taking the Fannie and Freddie debt. this JUST occurred to me... China may say NO to US Debt from Fannie and Freddie But China STILL may be lending the US money which in turn gets used for US tax payers refund checks which will go into this banks and in turn, these banks will use this money to pay off their write downs from exposure to Fannie and Freddie So China, whether it likes it or not, is going to pay ! I still didnt' finish this article. This regional bank point here in the article is mind boggling. That's the news of the day for me. Hmm.. You know ? Some say - hey, Why does Paulson selectively bail out investment banks ( ? ? ? bizarre) and retail/consumer banks ? JUST hit me, technically ? Perhaps if F^2 is fixed, they figure they'll be fixing the foundation which all the regional banks depend on. So, in a way, helping F^2 helps all the regional banks. I would never accept this though. Irresponsible leadership calls for responsible accountability of such leadership as those words seem to fit best here. IF you run a lemonade stand into the ground, MAYBE a neighboring stand will buy your goods at a Gecko fire sale but in NO way, should the neighborhood PAY for you lemonade stands losses. Second Graders could probably resolve what's wrong with this picture. MacDonald points out a BLATENT truth here, which is - why is it the responsibility of the taxpayer to pay for bad corporate decision making or policy ? 100 to 1 ? or as I figure, more like 50 to 1, STILL I have a solution, really ! everyone LLC themselves ! lol Loophole it up, let's all live in fantasy land where we can keep a 50 to 1 ratio of red to black.

from article: "Reports indicate that the Federal Reserve has been pressuring the Treasury Department behind the scenes not to adopt a rescue plan for Fannie Mae and Freddie Mac that would zero out the value of their preferred shares, as doing so would ignite a cascading effect of losses at the regionals and the need to raise even more capital to fill the potholes blown open by the dramatic drops in value in the preferred shares. Moody’s slashed ratings on preferred stock of Fannie and Freddie last Friday, to Baa3 from A1 on Aug. 22" No clue what that means there ! Just Kidding But this makes me think IF Fannie and Freddie are having to try to put their debt out to dry at crazy eddie's high high rates that China says No to even ? AND ? US Regional banks are backed in part through expectancy of Fannie and Freddie to have INTEGRITY ? Then - won't or shouldn't we expect to see Crazy Eddie's high high rates on debt airing to dry to show up for these regionals ? Really, how will the regionals pass the buck. Paulson is channeling the loss to the tax payers to pass the buck for F^2 but for the Regional banks ? Who don't have Paulsons pipelines and or direct welfare check candidacy ? how will THEY pass it ? lower CD's ? no free toasters ? higher service fee's ? Insufficient Fund charges at $120 ! lol hmm - will be interesting. What really blows is - you take solid integrity institutions that came through sub prime unscathed ? Guess what - while THEY didn't take any sub prime on ? as a bank ? ouch - little did they know, they DID, through Fannie and Freddie. And now ? I do say, I think I foresee some bad news reports from US banks coming Q3 and Q4 who will be looking at their total dependency on Fannie and Freddie saying - yikes, we're going to take a hit on this too! Write downs for the little guy comin' I bet And you know ? Let's look at Alabama just what ? 2 months ago ? BAM - out of business. No WONDER FDIC is hiring out the wazoo.

The medicated goo part of this I think points to asking whether any of this is enough to put the global economy into a tailspin mandating restructuring of nation state commerce interchange, or inter-commerce exchange within. Or, is it to be put in perspective through some hard analysis of the books to show - no, fallout from this will resolve by 2017, etc.

The author forgot few things: - the government has no authority to intervene,unless explicitly asked by FNM or FRE - 25% of FNM common stock is held by FNM employees; there is no way they would agree to anything that would depreciate their saving, already down 90% - if any intervention takes place, which is not needed anyway, it will only prop the value of the common stock. Treasury fully understands the negative impact of doing otherwise.

Some of you people need to take a deep breath and try decaf. The problem with letting the Preferred securities of these two GSEs go down starts with bank regulation. Unlike other corporate preferred stock, banks can buy agency preferred stock without limitation. In effect, regulators gave tacit backing to the shares. Similar to the backing given their debt. If the government doesn't back these securities, then what does the market see with the other GSEs? What is your FHLB bond worth? If FNMA and FHLMC need saving, it will be expensive. However, it will be a lot cheaper than letting them default.

All the recent Baillouts by the Fed recently have debased the value of the dollar. The Fed does not use tax money, they use fiat dollars that don't exist. This expands the M-1 money supply in the economy and lowers the value of the Dollar worldwide. The Fed needs to back off and not be so quick on the trigger with their fiat money...